The two primary issues with SVB were questionable risk management and high uninsured deposits. The bank did not manage its interest rate risk well, having a lot of short-term deposits invested in long-term bonds. When interest rates rise, bond prices fall, so SVB got squeezed when rates jumped over the past year. In addition, nearly 94% of its deposits were uninsured, exceeding the $250,000 deposit insurance limit in the U.S. SVB had the second-highest uninsured deposit rate among large U.S. banks at the end of last year.
Should Canadians be worried about their deposits?
As a result, I can appreciate your concern about your deposits, Mrs. B. Bank failures tend to raise concerns about contagion, with a ripple effect throughout the rest of the banking system.
Here in Canada, our history of bank failures is a short one. Over the past hundred years, the only two banks that have failed were Northland Bank and Canadian Commercial Bank, both in 1985. Most of our bank deposits today are insured by the Canada Deposit Insurance Corporation (CDIC), which protects up to $100,000 of eligible deposits at member banks.
Eligible deposits include bank accounts, guaranteed investment certificates (GICs) and term deposits, and your total protection at each CDIC member is up to $100,000 for each of the following:
- Deposits held in your name (e.g., personal chequing and savings accounts)
- Deposits held in more than one person’s name (e.g., joint chequing and savings accounts)
- Deposits held in trust (for each beneficiary)
As a result, the $100,000 can be magnified depending on the types of accounts you have. For example, if you have a savings account, a TFSA and an RRSP at the same member bank, you’re covered for up to $300,000 in deposits.
Some banks even have CDIC coverage for multiple issuers. The country’s largest bank, Royal Bank of Canada, currently has coverage for:
- Royal Bank Mortgage Corporation
- Royal Trust Corporation of Canada
- RBC Investor Services Trust
Each of these entities has its own CDIC coverage, so you may be able to have bank accounts, GICs or term deposits from different issuers within the same bank.
When is there a risk?
In your case, Mrs. B, since your TFSA has more than $100,000 in deposits with a single issuer, there may be a risk. Talk to your bank to see if it has multiple issuers that can provide better coverage. Otherwise, consider alternatives like transferring some of the TFSA deposit elsewhere or investing it differently.
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